Analyst sees NAND market grinding to halt in 2008

Published Thursday, February 21, 2008

2008 is not the year to be a memory maker. Following a slump in DRAM prices during 2007, the makers of NAND flash are faced with a slowdown in that business this year, according to market-analyst firm iSuppli.

Initially, iSuppli had predicted market growth of 27 per cent for 2008. Now the analyst has slashed that forecast to the single-digit percentage range. Global NAND flash revenue is set to rise marginally in 2008, up from $13.9bn in 2007. NAND flash is used heavily in consumer-electronics applications - including flash storage cards, MP3 players and USB flash drives - that are driven by retail sales to consumers. With consumer confidence taking a dive due to the US subprime mortgage crisis, the NAND market outlook has diminished considerably in 2008, claimed iSuppli.

"Unless the economy recovers vigourously later this year, last year's DRAM market disaster could be repeated in NAND this year," said Nam Hyung Kim, director and chief analyst, memory, for iSuppli.

In an early warning sign of consumer weakness, Apple has slashed its 2008 NAND order forecast significantly and has informed suppliers that its demand growth will slow in 2008 compared to 2007, according to iSuppli sources. This is expected to have a huge impact on the NAND market. With its extremely popular flash-memory based iPods, Apple was the world's third largest OEM buyer of NAND flash memory in 2007, with purchases of $1.2bn, representing 13.1 per cent of the global market, according to iSuppli. Before word of Apple's warning, iSuppli had predicted the company's NAND flash purchases would rise by 32.2 per cent this year, helping drive significant market growth.

On the supply side, slower NAND demand will have a major impact on suppliers' financial results. Capital spending on NAND production will rise by more than 20 per cent this year, ensuring easy availability of parts. This will cause prices to decrease. iSuppli believes that NAND prices already are below suppliers' fully loaded costs.

"In light of these factors, NAND suppliers are likely to go into the red in the first quarter, and are not likely to recover in the second," Kim warned.

The fourth quarter of 2007 served as a preview of the poor NAND market conditions to come. Global NAND revenue in the fourth quarter declined to $4.1bn, down 2.4 per cent from $4.2bn in the third quarter. Of the top-eight NAND suppliers, six suffered sequential declines in revenue. The only companies to achieve a sequential gain in revenue were Intel and Micron Technology, which produce NAND through their joint venture, IM Flash Technologies (IMFT). The two companies also led growth for the entire year of 2007, with revenue rising by 139.2 per cent for Micron and 269.6 per cent for Intel, having started from a small base. Combined, the two companies represent 10 per cent of the NAND flash market. Market leader Samsung has 40 per cent of the business.